Bankruptcy Alternatives Blog

Monday, February 22, 2010

Five Reasons Why Debt Consultants Are A Bad Bankruptcy Alternative

Credit and debt consultants advertise that they can settle your debts for cents on the dollar. It sounds too good to be true, and usually it is. They put you on a monthly plan where you pay hundreds of dollars per month, and they tell you they will use that money to make a debt settlement with your creditors. In many cases a debt settlement or debt management plan is a scam. It sounds good, but here are five reasons why using a debt consultant to deal with your debts is not a good idea:

First, a debt consultant doesn’t work for free. They will take the first few monthly payments you make for their fee. If they take the first 10 monthly payments for their fee, and then take another 10 payments for the settlement offer to the one of your credit cards, it will be 20 months before the first credit card company gets any money. It is not likely that a credit card company will do nothing for 20 months when they are not getting paid. If they are not getting paid, they will continue to call you, and they may take you to court and sue you. That’s not good for you.

Second, debt settlements will not work on all types of debts. The government will not accept a deal to get rid of your tax debt. They want their money, and they don’t make deals, because if they make a deal with you, they will need to make a deal with everybody, and that’s a bad precedent for them to set.

Third, the debt consultant has no way to force all of your creditors to accept the deal. One or two of your credit card companies may agree to a deal, but if the others don’t agree and sue you, the deal will fall apart. You need relief for all of your debts, not just some of them.

Fourth, in many cases the debt consultant is not doing anything that you couldn’t do on your own. Putting money in a bank account for two years, and then sending it to the credit card company, does not take much skill. You can do that on your own.